January 15, 2014

How to deal with difficult clients and situations

When clients are extremely demanding and/or require substantial write-offs, lawyers face difficult choices, especially in the current competitive marketplace. In many cases, lawyers choose the unhealthy option of simply suffering and complaining. This short post outlines three healthier alternatives:

Change the situation.

Accept the situation.

Leave the situation.

Obviously, all three of these choices involve financial risks which could negatively impact not only the individual lawyer, but also the entire firm. Therefore, we strongly recommend that the lawyer consult with appropriate colleagues and firm management and obtain their concurrence before taking any action.

Option 1: Change the situation

If the situation is simply not acceptable, then the best first step could be to try to change it. The simplest and least controversial approaches are the ones that are strictly internal, and do not require discussion with the client, such as applying legal project management to increase efficiency and client satisfaction, or brainstorming with others in your firm regarding steps you or your practice group could take.

If changing the situation requires negotiating with the client to change what they are doing, it is important to recognize that the simple act of talking to a client about how to improve things is not free of risk in the current marketplace, where competing firms are aggressively seeking new clients. Therefore, the way you pursue this option, or even whether you pursue it, depends on your relationship with the client, and the business objectives of the firm. There are times when a large client with significant write-offs is far preferable to no client at all.

If you decide to pursue change with the client, you could consider calling in the managing partner or practice group leader to appeal to someone with higher rank at your client than your present contact. Obviously, however, that step must be taken very cautiously if at all, since escalating the problem could backfire.

If you wish to handle this yourself, you could begin from the script below. Even if the client does not agree to help, it will provide you with new information regarding how they value the relationship, and your best next steps.

“Can you commit to (state the different, better actions you want the listener to take SPECIFICALLY)…..?

“Thanks for agreeing to help me in this way…

“I look forward to our next deal…

Sample script

Note: the narrator in this scenario is an outside lawyer, in a discussion with his/her bank client “Bill” regarding problems with borrowers applying for loans:

Bill, I need your help to avoid so many fee write-offs with your borrowers. I truly appreciate your business, and want to continue working with you.

But when a borrower like Anycorp, Inc. agrees upfront to reimburse our standard/reasonable/customary fees and yet ends up requiring a substantial write-off…

…The result is that I find myself in a difficult position when our work is done. In the last year we had to write off over $50,000:

Client

Loan date

Write-off

Amount

% of fees incurred

White Corp

January 2013

$11,000

10%

Brown, LLC

March

$15,000

13%

Red.com

August

$21,000

20%

Anycorp, Inc.

December

$9,000

18%

TOTAL

$56,000

15%

My concern about that is that I feel like no matter how well I keep you posted, and how good a job I do, I am often not paid in full. That puts me under pressure from my partners, who don’t expect me to work for free.

Can you commit to showing your borrowers my detailed budgets and work assumptions and get them to sign off on each material change in scope before I resume work, a procedure they can agree to in the term sheet?

Thanks, Bill…I really appreciate your strengthening these steps to help manage your borrower’s fee expectations so we can avoid ill will to your bank, and can protect my efforts. I really look forward to our next deal, when we can begin this new approach for our mutual benefit.

Of course, if Bill does not agree to this or some other mutually satisfactory solution, then you must reevaluate the relationship, and whether it is worth the frustration and lost income. For instance, the bank may complain about your work, or just show indifference to anything but low fees keeping their borrower happy. In any case, a business decision will be needed.

Option 2: Accept the situation.

If you decide you need the work and are not in a position to negotiate a change in what your client is doing, or you try to change the situation and fail, then ask whether there are sufficient reasons to accept the situation such as:

We have little chance to replace this loan business with more profitable loan business

We have little likelihood of getting more profitable non-loan business of this caliber or size

We need these partial payments to cover firm overhead

We need this low-realization revenue to keep our people busy

If you decide to accept the situation, keep these reasons in mind to help you cope better the next time a challenging situation occurs.

Option 3: Leave the Situation

If it is too costly to accept the situation, and all your efforts to change it fail, then notify the bank client that you will not be able to handle any further loan business from them if it happens again. (According to ABA Model Rules of Professional Conduct, Rule 1.16 DECLINING OR TERMINATING REPRESENTATION (b)… a lawyer may withdraw from representing a client if: (6) the representation will result in an unreasonable financial burden on the lawyer or has been rendered unreasonably difficult by the client.)

These are challenging times which can require tough decisions. But using any one of three options described above to help make a business decision for the firm is better than the unhealthy alternative of suffering and complaining.